Outsourcing, factor prices and skill formation in countries with non-overlapping time zones

Abstract

Time zone difference induced changes in trade and factor prices are relatively new concerns in trade literature. Here in this paper, we formulate a trade model capturing the issue of time zone difference and communication technology revolution together to show that due to these developments skilled workers benefit. Though wage inequality between skilled and unskilled workers is widened under reasonable and, of course, sensible condition. Return to capital dwindles while educational capital gets relatively high return. These changes also attract educational capital from abroad and eventually alter the sectoral composition of the economy in favor of more skill based one. One interesting implication of our results points to a provocative choice problem for the country concerned regarding high wage disparity and low skill formation which itself is a question of political economy.